FDI strategy to become proactive

July 20, 2018

Vietnam’s attraction of next generation of foreign direct investment (FDI) in high value-added sectors should be proactively, rather than retroactively, sourced to sustain the nation’s socioeconomic development and competitiveness.

Being proactive

In the report “Recommendations on Vietnam’s next-generation FDI strategy and vision 2020-2030”, presented by the World Bank Group’s International Finance Corporation (IFC) and the Ministry of Planning and Investment (MPI) at a report launching event in Hanoi last week, proactive investment promotions were mentioned as one of the eight key references to help Vietnam attract more foreign direct investment (FDI) in high value-added industries.

As Deputy Minister of Planning and Investment Vu Dai Thang said on the sidelines of the event, Vietnam has, for years, basically laid back and rolled out the red carpet waiting for foreign investors to come.

“We were rather passive in looking who would be coming, for it could be an investor from one of the G7 countries or one from other developed nations. In our opinion, Vietnam has now ended the era of welcoming as many investment projects as possible, and is moving on to focus on the quality of the projects. We’ll now be rolling out the red carpet for investors that come with advanced and environmentally friendly technologies,” he stressed, adding that the country will gradually phase out investment projects that aim at exploiting the country’s natural resources.

The government wants to end its approach of choosing quantity over quality when it comes to foreign-invested projects, Photo: Le Toan

Acting in a proactive manner, according to Thang, Vietnam will practically reach out to industry-leading enterprises around the world to showcase what the country has to offer and draw them in. “Many of the Fortune 500 companies have never set foot in Vietnam, particularly those in the IT or finance and banking sectors. So they are the targets for us to get to, we want to invite them to come,” he said.

In fact, various large-scale international investment promotions have been held by the Vietnamese government in recent years, in countries like Japan and South Korea – the two East Asian nations that have registered the highest investment capital in Vietnam to date. The most recent event was the Finance Investment Promotion Conference in Seoul in April that was hosted by the Ministry of Finance and attracted over 400 South Korean investors and officials.

The conference was aimed at giving rise to South Korean investment into Vietnam’s corporate bond market and initial public offerings (IPOs) of local enterprises, breaking away from the ample FDI inflows from South Korea seen over the past decades.

Domestically held investment promotion conferences, meanwhile, have proven their effectiveness in focusing FDI inflows. The northern province of Ha Nam, for instance, is home to 233 foreign-invested projects registered at $2.7 billion, thanks to its active investment promotion activities. FDI contributed some 32 per cent of the province’s total income in 2017 and employed over 58,000 employees, accounting for nearly 45 per cent of the total labour force in Ha Nam.

According to Deputy Chairman of the Ha Nam People’s Committee Truong Quoc Huy, the plan to lure in more FDI inflows in the next few years requires the province to expand its investment promotion activities by enhancing the scale and methods of investment promotion, and facilitating additional collaboration with investment promotion agencies like JETRO, KOTRA, JICA, and KOICA to introduce the potential of Ha Nam to potential investors in Japan and South Korea.

New era – new approach

While Vietnam has reported an increase in annual FDI inflows, the country is said to still be the target of low-quality FDI streams.

Recommendations for Vietnam’s next-generation FDI strategy thus serve as a guideline for the government to develop its new national FDI approach and part of the country’s strategic documents such as the Socio-Economic Development Strategy (2021-2030), to draw in high-quality streams of FDI.

“The challenge we face is unique, as record FDI inflows contrast with limited spillover and value-added benefits. We believe the recommendations outlined today will underpin a new national approach to FDI and contribute to achieving our national development goals,” said Thang.

Developed in partnership with Switzerland’s State Secretariat for Economic Affairs, the strategy responds to recent findings that FDI in Vietnam is substantially driven by low labour costs and generous incentives. In fact, investors have identified a lack of skilled labour as an impediment to growth, while the absence of integrated local supply chains has further blunted the competitiveness of firms, as has the lack of qualified domestic suppliers and effective policies to assist local players.

“By addressing these issues, the government is likely to unlock more opportunities for Vietnam,” said Kyle Kelhofer, IFC country manager for Vietnam, Cambodia, and Laos.

“The core analysis involved an intensive review of potential priority sectors. It aimed to identify which sectors – and under what circumstances – represent the most competitive opportunities for Vietnam to attract investment (FDI and domestic), create both more and better jobs, and increase sourcing from local firms,” Kelhofer said.

Apart from acknowledging the importance of investment promotion activities, Thang noted that working on an institutional framework will continue to be MPI’s prime focus in the near future, in a bid to synchronise the entire legal framework including the Law on Investment and other sector laws, which are currently somewhat unaligned.

“We believe that once we’ve built up our legal outline, particularly the one on investment, FDI will prosper. By 2019, when the Law on Investment and other related laws are amended and supplemented, we expect there will be a new development phase for FDI flows into Vietnam,” Thang said.

According to recent statistics, global FDI flows totalled $1.75 trillion in 2016, with Asia-Pacific retaining its global lead among FDI recipients. The ASEAN countries accounted for 44 per cent of recorded FDI projects in 2016 (up from 28 per cent in 2003), while the Asian Cubs (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) alone accounted for 28 per cent of recorded projects in the region (up from 22 per cent in 2003).

The cubs saw their share of FDI projects within ASEAN drop from 78 per cent in 2003 to 63 per cent in 2016.

As of June 20, 2018, Vietnam had 25,923 valid foreign-invested projects, with the total registered capital of 331.24 billion.

Source: vir.com.vn